Banks to Earn 93% More Thanks to Lower Taxes and Better Margins

Bank earnings are projected to increase by 93 percent on a quarter-on-quarter (QoQ) basis on forecasts of improved interest income margins and reduced tax expenses.

According to a report by Ismail Iqbal Securities (IIS), the main reasons behind this are an increase in the Net Interest Income (NII) due to both advances and investments repricing and a reduced effective tax rate of 53 percent (versus 73 percent in 2QCY22).

Source: Ismail Iqbal Securities

NII is expected to increase by 19 percent QoQ, led by the lagged impact of asset repricing. The report expects the Non-Markup income to decrease mainly due to the expected decline in forex income amid the high base effect, extreme volatility, and dollar shortage in the market. The fee income is also expected to decline due to the slowdown in the economy.

Operating expenses will likely increase this quarter due to high inflation and PKR devaluation. Provisions are also expected to increase due to high borrowing costs and economic slowdown. The tax expense is expected to decrease due to the absence of a one-off retrospective advance-to-deposit ratio (ADR) tax.

Banks with advance-to-deposit ratio greater than 50 percent like Bank Alfalah, Bank of Punjab, Meezan Bank, and Bank Al Habib are expected to benefit more as their effective tax rate is likely to come down to 49 percent. The report forecasts banks to resume normal payouts after a slight reduction in the previous quarter due to tax expenses.



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